The CBILS Loan Scheme was one part of the government’s support strategy for UK businesses during the Coronavirus pandemic. For companies with a turnover of 45 million or less, the Coronavirus Business Interruption Loans offered easy access to emergency funding.
For loans of 250,000 or less that came without the requirement for a personal guarantee which made them highly attractive. For loans over £250,000, security could be asked for but never on the director’s family home, and only for a maximum of 20% of the debt.
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What Happens if my Company Can’t Repay a CBILS Loan?
If your company can’t repay a CBILS you should expect the lender to pursue the debt as per their normal protocols. Many lenders have had to evolve quickly due to the level of loan defaults post COVID-19: most begin with reminder letters, followed by statutory demand letters, then winding up through the courts where appropriate.
As a company director faced with the realisation that you can’t pay back the CBILS, you need to get organised and take professional advice at the earliest opportunity. An inability to pay debts is a clear indication of insolvency and, if this is the case, you should educate yourself about your directorial responsibiliities. Insolvent companies have a primary responsibility to creditors not shareholders so don’t pay yourself or anyone else before taking advice from a licensed insolvency practitioner.
What Happens to a CBILS During Liquidation?
When a company is insolvent, debts can be written off. So the principal risk for CBILS is around the personal guarantee, where one has been used. If the CBILS was for less than £250,000 the loan will end with the closure of the company since no guarantees were required. For larger loans, you should carefully check the terms and conditions of the lenders agreement to understand the ramifications of insolvency. You need to know what course of action the lender will take when they call in the guarantee and especially if they plan to pursue you through the courts. Again, this is an area where you need specialist insolvency advice from someone with expertise in this area.
What Happens to a CBILS during Administration?
While adminstration doesn’t necessarily mean the closure of an insolvent company, the administration of the Company will crystallise the remaining CBILS debt, meaning it becomes a provable debt in the administration. Directors should expect any security or personal guarantees in place to be be called in accordingly.
